September market update and investment risks

The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.

These views are as at the end of September 2023.

The value of investments can go down as well as up. Investors could get back less than they put in.

Please remember that past performance is not a reliable indication of the future performance.


The prospect of higher for longer interest rates was a significant drag on financial markets. While inflationary pressures generally continued to ease and it appeared increasingly likely that the current rate-hiking cycle was at, or close to, the peak, investors worried that central banks would keep interest rates elevated for a prolonged period. Central banks’ determination to bring inflation under control with restrictive policies weighed heavily on government bond markets. The US 10-year Treasury yield climbed to the highest level since 2007. Concerns about the US fiscal position and growing debt levels, not to mention a credit downgrade by ratings agency Fitch, also dented investor appetite for US Treasuries. German and Japanese government bond prices declined too, while UK gilts were slightly more resilient.

The selloff in the bond market spilled over to equity markets. The FTSE World Index dropped 3.4%, reversing some of its gains since the start of the year. The S&P 500 Index fell 3.3%, the stockmarket’s first negative quarter in 12 months, but it remains in positive territory for the year to date. European stockmarkets, notably those in France and Germany, also had a weak quarter, amid worries that the region’s economy might enter a recession. The UK was one of the more resilient markets, with the FTSE 100 Index gaining 2.2%. Asia Pacific (ex Japan) and Emerging Market equities also outperformed the broad global market. 

Equities (or shares)

The UK stockmarket ended with a modest gain. UK multinationals benefited from the boost to their overseas revenues from a bout of sterling weakness. This reflected the flat-lining domestic economy, the Bank of England’s decision to hold interest rates at 5.25% in September, and a strong US dollar. The currency move, together with rising oil prices, raised concerns about the inflation outlook, and the implications for rates staying higher for longer.

In the US, investors were encouraged by lower inflation and excited about developments in artificial intelligence, but the hawkishness of the Federal Reserve led share prices to reverse course. Markets fell sharply in September, leaving them substantially down for the quarter.

European equities fell amid concerns about the economic outlook and soaring government bond yields. The European Central Bank hiked interest rates to a record 4.0%. Data indicated that activity was slowing, notably in Germany and France, raising the prospect of a recession.

The Japanese stockmarket was one of the best performing stockmarkets globally.

What do you mean by Equities?

  • Equities are commonly known as "shares". When a fund buys a company share, it is investing in a company and, in exchange, receives a share of the ownership of that company. Shares give two potential investment benefits:

    • share prices may increase as the value of the company increases.

    • companies may pay dividends - regular payments made to shareholders based on how well the company is doing.

What are the general risks of this type of asset? 

  • Over the longer-term (over 10 years), equities are considered to offer greater growth potential than many other asset types. However, the value of any investment can go down as well as up and so there is a higher risk of losing your original capital than investing in fixed interest securities (see below).
  • The financial results of other companies and general stock market and economic conditions can all affect a company's share price, and consequently the value of any fund investing in that company.

Fixed interest

UK government bonds (gilts) marginally declined, although they fared better than other core sovereign debt such as US government bonds and German government bonds. A modest support for gilts came from signs that UK inflation had started to ease, meaning investors cooled expectations of interest rate hikes from the Bank of England.

The performance of global bond markets was poor once again, as investors weighed the possibility of central banks pushing out the timing of interest rate cuts. As a result, bond yields stayed elevated: yields on US government bonds and German government bonds rose more than on UK government gilts.

UK corporate bonds were stronger compared to the previous period and versus regional rivals, boosted by broadly flat government bond yields and some tightening of credit spreads.

What do you mean by Fixed Interest?

  • Fixed interest securities, more commonly known as "bonds", are loans issued by companies or by governments in order to raise money.

  • Bonds issued by companies are called Corporate Bonds, those issued by the UK government are often called Gilts or UK Government bonds and those issued by the US government are called Treasury Bonds.

  • In effect, all bonds are IOUs that promise to pay you a sum on a specified date and pay a fixed rate of interest along the way.

  • Index-linked securities are similar but the interest payments and redemption value are normally increased by a price index e.g. for UK government index-linked securities, interest payments and redemption value are increased in line with the UK Retail Price Index.

What are the general risks of this type of asset

  • On the whole, investing in Government or Corporate Bonds is seen as lower-risk than investing in equities. To date, no UK government has ever failed to pay back money owed to investors. But with Corporate Bonds there is a risk that the company may not be able to repay its loan or that it may default on its interest payments.

  • Corporate and Government bonds are sensitive to interest rate trends. An increase in interest rates is likely to reduce their value, and hence the value of any fund investing in them.


Economic headwinds and the outlook for interest rates continue to drive real estate valuations. Following a relatively stable period from March to May 2023, capital values for All UK commercial property are declining again. According to property consultant CBRE, prices fell by 1.0% for the three months to August (latest date for which data is available). Performance has been most challenging in the office sector. However, the prices of modern offices in strong locations with sustainability credentials, are the most resilient. Values in the retail sector also fell recently, albeit more modestly. In contrast, the fortunes of the Industrial sector have proved more favourable, with capital values rising modestly. Demand for well-located efficient logistics properties to fulfil delivery requirements remains healthy.

What do you mean by Property?

  • For our funds we would mean commercial property investment. This generally means the fund is sharing in the returns from the ownership of some buildings (for example, offices and shopping centres).

  • The value of the property may increase and tenants may pay rent to the owners of the building.

What are the general risks of this type of asset

  • Property can be difficult to buy and sell quickly. Fund managers may have to delay withdrawal of money by customers from a property fund until they can sell some of the buildings the fund invests in.

  • The actual value of a property is what someone is prepared to pay for it - an actual sale value. As sales are infrequent, interim valuations are based on a valuer's opinion and may be revised up or down from time to time. This can affect the value of a fund invested in commercial property, with the value possibly fluctuating significantly and could result in an investor not getting back the amount they originally invested.

  • This leads to a number of risks for funds investing in property:

    • Cash could remain uninvested as property assets can be difficult to buy, leading to lower returns than expected.
    • The value of the fund may be reduced if a large number of withdrawals are requested and it is necessary for properties to be sold at reduced prices.

    • There may be delays removing your money from the fund if property cannot be sold.

    • Property fund valuations may be revised periodically, upwards or downwards.

    • Rental income is not guaranteed. Defaulted rent and unoccupied properties could reduce returns.

    • If the size of the fund falls significantly, the fund may have to hold fewer properties, and this reduced diversification may lead to an increase in risk.

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